This is a very short piece - inspired by recent discussions both in my diary about the 1970s and Migeru's latest Eurozone diary.

(The next 1970s diary is coming soon...)

I've been musing on simple models of how we increase societal income/wealth/well-being.

Particularly if we consider countries in the European periphery - we need to find a way to improve their wealth that isn't dependent on out-trading other countries.

PerCLupi didn't like the word "income" as it puts us into a particular frame, but I think it's important not to lose sight of the system as is, as well as the system we'd like.

front-paged by afew

Anyway - at a basic level it seems to me there are three factors in the production of "societal wealth" if we take an overview.

Energy

Raw materials

Human labour

Technology exists as a mechanism for reducing the need for any of these factors for a particular use - which frees them up for some other use.

Let us note that raw materials are a limiting factor, but there are quite a few workarounds if you're willing to use energy or labour in greater quantities. And let us note that while current energy supply is an carbon problem, this is not inevitable. It's easy to take the discussion in a different discussion which is all about energy efficiency, but I think there's more to talk about than that.

Lots of random thoughts follow from this, which I'm going to write down in no particular order - and note while the abstract is interesting, I think it's important to connect it to the European periphery or other countries who are in a bind.

If you move your factory from Country A to Country B you may be financially rewarded because of lower wages. In terms of world wealth, probably nothing has changed because you haven't freed up any labour.

For a periphery country like Spain, what can they do to become wealthier? We've talked a lot about capital investment etc. but so much of this is about "trade" which is of marginal importance, because rich countries don't do much Ricardian trade (see Krugman's work) and thus the main gains are zero-sum (German mercantile model) - but realistically this is no model for more than a few countries.

Having said that - it seems obvious to me that a basic strategy for the whole of Europe, but particularly the periphery is to end the dependence on energy imports. If you have your own energy, a big part of your wealth puzzle is solved.

More generally, to become wealthier, a country can use more energy, more raw materials or more labour. Or use current amounts in more efficient ways.

A basic failing of current economics is that it seems incapable of increasing the amount of labour in use.

Maybe another way to look at this question is "How wealthy could we be?" Now the goal might not be to be wealthy, but it seems to me lacking in current economic debates any sense of the possibility frontier - and thus any sense of how far we're failing to meet it.

We could be wealthier by building more solar/wind farms. "Energy too cheap to meter is an old phrase - but I think there's still something there."

We could be wealthier if everyone who wanted to work could work, contributing to improving things.

Raw materials are an issue - but we could be wealthier if we found ways not to depend on others for materials...

I am skeptical of the distinction between "energy" and "raw materials." Energy, in the final analysis, is simply another raw material, not so different from many other.

The fundamental difference is between sustainable and unsustainable (use of) resources. Harvesting more of an unsustainable resource does not make you wealthier, for the same reason drawing down your bank account does not make you wealthier. Harvesting more of a sustainable resource (subject to the boundary condition that it remains sustainable) makes you wealthier, for the same reason getting a better paid job makes you wealthier.

Using resources more efficiently makes you wealthier, of course, for the same reason paying less rent on the same house makes you wealthier.

For time bound resources - e.g. labour it's clear that using the resource more efficiently allows something else to be done. But as I note, our current system is really bad at getting something else done.

Likewise, while some kind of inter temporal thinking is clearly correct, I'm wary of the hand-waving that is often done around this at the moment, because it seems to lead inexorably to not doing things.

Using less steel to build a train carriage makes us wealthier because there's more steel left to do something else with. But the question is, do we?

In terms purely of calories, potentially fairly high. You can synthesize methane and ammonia from air, given energy, and you can combine those to make amino acids and fatty acids. Theoretically, all of this can be done adiabatically.

In practice, that's science fiction. But so is energy too cheap to meter.

Example: I'm a very wealthy person. I have adequate food and clean water ... I'll be hitting the grocery store later today and the Farmers' Market tomorrow. Love those tomatoes and corn. Earlier this week I realized I was still having trouble walking over to the Sac State campus (tutoring just around the corner) and I said "Fuck It!", time to change priorities. I'm still recovering from almost checking out 2 years ago from pneumonia and walking is still a chore. My back is screwed up, that won't get any better, and sitting for 2 hours at a shot doesn't help. So guess what? I'm skipping tutoring until I can walk to and from the campus without running on fumes. Imagine that ... I'm telling the boss "I quit, until further notice!" You try that, peasants!

There's the question, what is wealth, and there's the question, how much wealth is enough?

From the human perspective, I think wealth might be plotted on a 3-dimensional scale, where the axes are time, freedom, and comfort/quality.

Do you have enough time to enjoy your freedom and the quality of your material possessions? Do you have the freedom to choose what to do and when to do it? What degree of material comfort and quality is available to you?

The laws of compound interest and the murderous returns necessary to maintain current accumulated wealth, combined with a deeply entrenched aversion to creating money and giving it to those who need it, make it impossible to spread the immense bounty made possible by current productivity. But how could this be fixed?

No accumulated income? On what time-scale should this be measured? Weeks? Months? Years?

Maximum working hours, so as to spread current employment opportunities more evenly, and increase free time for all? How about 4 hours/day?

What to do about housing?

And for that matter, industrial planning? How could industries be induced to produce effectively and efficiently, avoiding both the sub-par quality and unresponsiveness of traditional Soviet-style socialism (where accounting techniques resulted in plant owners avoiding production for consumers at all costs), and the current over-production and over-efficiency of the current system?

I'm sorry for my deficient English expression. I think I should try to explain what I meant.

The word "income" is not what I did not like: I did not like the "concept" of "being rich" = "having money", especially as socio-political objective, public and private, and as a synonym of "social wealth". I wanted to give a nuanced answer to your question: How can we arrange an economy so that we get richer?

I agree: it's important not to lose sight of the system as is, as well as the system we'd like. The system, as it's, requires "income" ("money"): but to obtain "social wealth". Wealth is not getting money, although money is needed to get wealth.

We need increase societal income/wealth/well-being. The current crisis raises the question of to obtain the necessary wealth, the necessary resources. But, as we have to operate in the real -not utopian- world, we must ask, for the future without crisis, how we have to to obtain resources and also by the ideology that must underlie it.

Particularly if we consider countries in the European periphery - we need to find a way to improve their wealth that isn't dependent on out-trading other countries. Can we dispense with the global or transnational relationship in this world as it is?

Can we dispense with the global or transnational relationship in this world as it is?

Not without reordering the nature of how business is conducted and without individual nations regaining actual sovereignty. That sovereignty has to include the ability to determint, at least to a significant extent, the terms of trade for your economy, unless your economy is self-sufficient.

I believe that the potential for economic self-sufficiency posed by renewable energy is seen a posing a fundamental, if not existential, threat to the current paradigm of global elites strip mining the societies of the world so as to divert all available wealth into their coffers and that this is a significant reason for the relatively slow pace that renewable energy sources are being developed.

I disagree with 'labour' as a value. When used physically, it's another form of energy and can mostly be mechanised.

But that's it's least valuable application.

Resources
Intelligence

Intelligence is the ultimate wealth amplifier. When insight and creativity are applied to a problem, new solutions become possible and resources become more valuable - either because they become more accessible, or because their social and utility values increase.

But I also think we need to distinguish between social/collective wealth, and personal power.

If I have more power than you I can pressure you to act in certain ways, with rewards and punishments to match.

In capitalist economies the first order rewards and punishments are financial.

In other cultures they're physical and/or political.

Problems happen when personal power is used to limit or destroy collective intelligence.

I'd suggest the true measure of civilisation is the extent to which a culture is dedicated to increasing collective intelligence and providing access to all of its benefits, or preserving and exalting personal power for a small minority.

While I will not argue that intelligence is a critically important aspect of labor, I also think that there's another key aspect of it, that is completely different in quantity and application - attention. There are a lot of service jobs that just need someone to really pay attention - no, more than that, to pay attention and to care what happens. This isn't innovation, this isn't solving new problems - this is just doing things that need to be done, and doing them correctly so that everybody is better off.

Medicine? Most of it is just paying attention to the sick, and trying to help them. Sure, medical researchers are out there trying to solve new problems, but most nurses and doctors working with the public are just applying their attention and care.

Education is a field where, arguably, research has made the field worse, not better. Academic education programs seems to be a black hole of mediocre intellects pondering problems that are only problems for themselves, and then forcing their half-baked solutions on the actual teachers in the field - most of whom need, more than anything, the time and energy to really pay attention to their students.

Law and government - sure, directing national policy is a realm for the intellect, but helping people get their drivers license, ensuring fair and respectable legal representation, and police work are about paying attention, being there, and caring how things go.

Cooking, crafting, massage, hair/nail/beauty care, repair and renovation, and a hundred more that aren't coming to mind - all of these are key services that dramatically improve the quality of life for people around them, and thus contribute greatly to human wealth, and all of them are based largely on attention and care.

Cooking, crafting, massage, hair/nail/beauty care, repair and renovation, and a hundred more that aren't coming to mind - all of these are key services that dramatically improve the quality of life for people around them, and thus contribute greatly to human wealth, and all of them are based largely on attention and care.

damn straight... :)

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

All of this are labour-intensive low-resource-intensity activities. GDP could expand without strengthening the current global natural resource constraints if these sectors were expanded. There is room for plenty of low-skilled labour in these sectors, too, so a lot of people could immediately be recycled into them.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

Definitely. In light of our earlier discussions about the inflationary/non-inflationary effects of government spending in previous diaries, I've been thinking that a good way to get started on a full employment program would be for the central government, the part the issues money (making it impossible for the current Eurozone, sadly), to guarantee state/province/local entities full funding for as many teachers, doctors, social workers, etc. as they feel fit to hire, and to fund it all via direct monetary creation so there's no deficit funding to worry about at all.

In addition to promoting employment in system-critical and labor-intensive sectors, this would also be a powerfully anti-cyclical stimulus program for the whole economy, as there would be a large sector of fairly low-income people who would keep their jobs, and keep pumping money into the regular economy, despite the overall economic situation, and despite any decline in tax revenue.

Having said that - it seems obvious to me that a basic strategy for the whole of Europe, but particularly the periphery is to end the dependence on energy imports. If you have your own energy, a big part of your wealth puzzle is solved.

there's the nucleus right there! that's what makes it so staggering about the collective blind spot that allows the present dependence on hydrocarbons, with all its tragic corollary ramifications, from spills and pollution in extraction, the price gouging, the dirty deals, and the terrible effects on inner and outer environments.

monti has announced that italy is going to reduce its energy imports from 80+ down to 72%.

great, one may think, until it emerges that his plan for this is to drill for more oil off and onshore in italy.

aaaargh! why is this not being utterly ridiculed? why are the PIIG countries, all more dependent on fossil fuels, imported for the most part, still enriching the most polluting industries, responsible for so much degradation, when these countries (well, barring ireland!) are saturated with huge and growing solar energy going unharvested?

why are we so blind, why don't we insist on visioning that helps us break away from these terrible cycles of consumption/destruction?

because these energy companies are still trying to control their markets through monopolisation through capture of the political process through lobbying and suppression of the simple facts, that a reasonably inteeligent 12 year old can interpret as being a no-brainer...

that quoted para of yours holds the whole essence of why i come to ET, and why i believe that as long as we countenance the present imbecility with regards to european energy policies, notwithstanding the intelligent deployment of solar and wind we have seen in some parts of the EU, ironically in a country where the urgency is if anything milder, in that there is less sun and the national economy is in a healthier state.

the ability of all these studious wonks looking at the energy overview of the EU to overlook this simple truth, that could transform the balance sheets of the peripheral countries in the most radical and fundamental way.

if there is a future, historians will scratch their heads how so many people can have been so colossally stupid and gulled for so long. europe has least reason of this ignorance, as we have already made so much progress in these fields, we are world leaders, yet actions like monti's are not treated with the derision they deserve in this day and age.

what it will take to wake out of our collective trance, i shudder to think, seeing the depth of ignorant denial we swim in, wrt energy. it's completely auto-lesionistic and as hard to watch as someone beating themself on the head with a 2 by 4 and wondering why they have a headache, and then setting right back to doing it some more to cure the pain.

what kind of growth can you hope for when 70% 0f your energy is bought from the north? it's like taking an aspirin when you're losing quarts of blood from sawing off your own leg...

italy spain and greece should be able to provide massive amounts of sustainable, renewable energy. instead we fantasise about sucking it from the sahara and continuing to import our way there to prosperity. even if that still beats more fossil foolery.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

If one looks closely, Spain was doing more things right than other Euro-countries and the US. Had they avoided the debt fueled housing construction and inflation boom along with all the immigrant construction labor, the country would be in reasonably good shape today.

Anyway - at a basic level it seems to me there are three factors in the production of "societal wealth" if we take an overview.

Energy
Raw materials
Human labour

I believe these leave out the most important factor - one that needs to be made quite explicit:

The ability to creatively reorder the structure of our society as needed to produce what we need.

Even though they did not have 'money', as we understand or misunderstand it today, the ancient Sumerians, the First Dynasty Egyptians and others more than three millennia ago did have this essential capability. Today most believe that 'There Is No Alternative' to the way in which decisions are made and implemented on reordering the society and, I would argue, that the ways in which this reordering is now being conducted is net more destructive that creative. Denying our ability to choose the means and ends towards which we reorder our societies leaves the process in the hands of those who make those decisions solely on the basis of the profits their corporations will realize from those decisions and argue that they must do this in the interests of the shareholders, who they routinely shaft, along with the rest of the society.

Raising this point is likely to get one labeled a radical, socialist, communist or as a deluded individual. But until we get across that the basic order of society CAN be changed in any direction we choose and that the decisions on that are the essence of real politics. Unless and until this point is won we are fighting on our opponents well prepared field of battle.

This key book by the UN may be informative for this discussion. A key implication of their work on this is that intangible wealth accounts for bulk of the total wealth of the developed world (and even much of the wealth of the less developed world). Intangible wealth includes human capital, such as education, but it also includes social capital even more so, such as the institutions, formal and informal, which allow for people to go about getting what they need to maximize well being. Once you include the intangible forms of wealth, it becomes quite hard to honestly draw any general conclusions about policy strategies for raw materials, labor, or energy since minor shifts in the institutional universe can greatly outweigh major shifts in natural resources or labor/population. Instead such conclusions are going to be very case specific to particular geographies and times.

It's a while since I read that one - but my view then, as now, is that it's a book full of misunderstanding of our current problems.

Institutions affect the choice and effectiveness of wealth strategies - however what this diary is about is what the basic components for creating wealth are - the building blocks for any strategy - something that has become obscured in modern economic discourse.

I think if you're not including institutions and education as basic building blocks of wealth creation, you're missing most of the foundation. This is especially the case since wealth is relative to what people value in life, and institutions are instrumental in determining what is valuable and what is worthless in human society independent of the amount of raw materials available.

Your implicit model of economic value seems to be that wealth is a function of raw materials and human labor with some kind of technology/institutional multiplier. You haven't specified how people put a value on such production but you seem to discard the utility theory of conventional economics for doing so. So, specify how you think people determine how much raw materials and labor they need to be wealthy or at least achieve an acceptable level of human functioning.

I think that's a bit unfair. In that they set rules and expectations, and set basic minimums in several ways, institutions are key aspects of human wealth and wealth creation. Public safety matters. It might be hard to quantify how much it matters to one's sense of well being, but it matters.

I'm not so sure that this approach will lead to an improvement in overall well-being. If you come up with these three or four labels of "basic factors" in wealth, and then build a system that trades them against each other, then you will end up basically where we are now.

Where is the "happiness" factor, the "family togetherness" factor, the "pleasant landscape" factor, the "pleasant philosophical discussion" factor, the "educational background that enables reasoned debate" factor?

On the one had, everyone needs food, shelter, and clothing. Anything beyond those basic needs for physical survival must be traded off against the philosophical factors. For example, is a Buddhist monk more or less happy than a Wall Street banker? The monk uses (a lot) less of all of the basic factors that you list, and is, arguably, better off. Society needs to have that argument, of course, but if the answer is that the banker is better off, then we are back to where we started.

In a capitalist society, that means having enough money to not have to give careful thought to the price of every purchasing decision you make. And it means living in a society where the systems of material provisioning work reliably.

There are other ways to organize society which do not place so great an emphasis on money. But a lot of them trade off the reliability of the provisioning systems.

I wrote several columns on job creation over the last year, columns that explained in great detail how new businesses, young businesses, and small businesses create jobs and big businesses destroy them. Big business grows by economies of scale, economies of scale are gained by increasing efficiency, and increased efficiency in big business always -- always - means creating more economic output with fewer people.

Wealth creation is just as important as job creation in our economy but too many experts get it wrong when they think wealth creation and wealth preservation are the same things, because they aren't.

Wealth creation is Steve Jobs going from being worth nothing at age 21, to $1 million at 22, $10 million at 23, $100 million at 24, to $9 billion at his death 30 years later and in the course of that career creating between Apple and Pixar 50,000 new jobs.

Wealth creation is not some third generation scion of a wealthy family turning $4.5 billion into $9 billion over the same period of time, because that transformation inevitably involves a net loss of jobs.

The fundamental error of trickle-down (Supply Side) economics is that it is dependent on rich people spending money which they structurally can't do fast enough to matter, and philosophically won't do because their role in the food chain is about growth through accumulation, not through new production.